EURUSD stays defensive near 1.0350 amid shift in sentiment, US Retail Sales, ECB’s Lagarde eyed

• EURUSD remains depressed after reversing from 4.5-month high.
• US Dollar bounces off three-month low as Russian missiles killed two in Poland.
• US/EU data, G20 updates enabled the previous run-up ahead of the key updates.
• Risk catalysts may entertain traders, mostly the bears, ahead of the US Retail Sales, speech from ECB’s Lagarde.

EURUSD teases the bear’s return by holding lower ground near the mid-1.0300s after rising to the highest levels since early July. The major currency pair cheered the market’s risk-on mood and upbeat data from home to refresh the multi-day high before the fresh geopolitical fears dragged prices ahead of important data/events.

News that Russian missiles struck in Polish border with Ukraine and killed two triggered the latest risk aversion as Poland is a North Atlantic Treaty Organization (NATO) nation. Ukrainian President Volodymyr Zelenskyy harshly criticized Russian missile strikes while NATO Ambassadors are up for a meeting early Wednesday to discuss the issue. Meanwhile, a Polish reporter was quoted on the blasts tonight while saying, ''My sources in the services say that what hit Przewowo is most likely the remains of a (Russian) rocket shot down by the Armed Forces of Ukraine.''

Talking about data, Germany’s ZEW Economic Sentiment Index improved to -36.7 in November versus -59.2 prior and the market expectation of -50. Further, the nation’s ZEW Current Situation Index also rose to -64.5 from -72.2 previous readings and the analysts' estimate of -68.4.  Additionally, the second estimate of the Euro Area Gross Domestic Product (GDP) for the third quarter (Q3) matched the initial forecasts of 2.1% YoY and 0.2% QoQ.

On the other hand, US Producer Price Index (PPI) for October eased to 8.0% YoY versus market forecasts of 8.3% and the downwardly revised prior of 8.4%. It’s worth noting that the monthly figure reprinted the 0.2% prior (revised from 0.4%) while easing below 0.5% expectations. Moreover, the Federal Reserve Bank of New York's Empire State Manufacturing Index jumped to 4.5 in November from -9.1 in October and the market expectation of -5.

The recently softer data from the US and Eurozone renewed concerns about the Fed’s pivot and favored the market optimists previously. On the same line was an absence of major negatives from the Group of 20 Nations (G20) meeting in Indonesia. Further, China’s readiness for more stimulus, especially after witnessing downbeat data, also favored the risk-on mood and the EURUSD buyers previously.

Amid these plays, Wall Street closed with smaller gains than the early-day moves while the US 10-year Treasury yields struggle at six-week low.

Moving on, EURUSD is likely to remain pressured ahead of the US Retail Sales for October, expected 1.0% versus 0.0% prior, amid sour sentiment. Should the actual outcome of the data appear softer the pair may rebound. However, the recovery also depends upon the speech from European Central Bank (ECB) President Christine Lagarde amid looming fears of recession and recently mixed comments from the policymakers over the next hawkish step.

Technical analysis

A failure to provide a daily closing beyond the 200-DMA hurdle, around 1.0425 by the press time, joins overbought RSI conditions to challenge the bulls.